The decision by India and the European Union to restart stalled talks on a free trade pact comes amid growing unease on both sides about China’s rise, according to analysts.
The decision was announced following a summit of EU leaders in Portugal last week, which Indian Prime Minister Narendra Modi joined via video conference.
The meeting was held days after the EU suspended efforts to ratify an ambitious investment agreement with China following tensions that have grown between the 27-member bloc and Beijing about its treatment of the Uyghur population in Xinjiang province.
Although reviving trade negotiations that were abandoned by India and Europe in 2013 will not be easy, the move is being seen as part of efforts by both sides to build closer ties in what analysts call a new “geopolitical and geo-economic environment.”
“The kind of questions that have been raised recently about China have propelled Europe and India to look at each other with a different set of priorities,” according to Harsh Pant, head of Strategic Studies at the Observer Research Foundation in New Delhi and Professor of International Relations at King’s College, London.
“Also post the pandemic, many countries are looking closely at the issue of overreliance on China in trade and Europe, in particular, has been over dependent on China. And from India’s perspective, the West is going to be a very important partner as it re-evaluates every aspect of its foreign policy from the standpoint of the China equation,” says Pant.
India has been moving to build deeper partnerships with countries like the United States, Japan and Australia following an eight-month military standoff with China along their disputed Himalayan borders. Although the standoff eased in March, tensions are still running high over several undemarcated stretches where both countries have deployed tens of thousands of troops.
Both India and the European Union struck an optimistic note after the summit. Indian foreign ministry spokesman Vikas Swarup said there was a strong economic rationale for relaunching trade talks as the European Union was India’s largest trading partner in 2019-20 with bilateral trade of about $ 90 billion. President of the European Council Charles Michel called it a "new important chapter" in ties.
"We agreed to resume negotiations for a balanced, ambitious, comprehensive and mutually beneficial trade agreement which would respond to the current challenges," according to a joint statement by both sides.
A study by the European Parliament last year before Britain's departure from the bloc had estimated the potential benefits of a trade deal with India for the EU at around 10 billion dollars. India is also due to start trade negotiations with Britain later this year.
The bid to deepen ties with Europe goes beyond trade - a “connectivity partnership” launched by the two sides that aims at building joint infrastructure projects in third countries including Africa, Central Asia and the Indo-Pacific is also seen as a pushback against China’s ambitious Belt and Road Initiative.
However, hammering out a trade deal will be challenging with some analysts warning that India has turned even more protectionist in recent years.
India and the EU had halted seven years of negotiations in 2013 after hitting a roadblock over key differences – Europe wanted India to lower levies on its major exports, such as wines, spirits and auto components, while New Delhi wanted greater access for Indian professionals to work in Europe.
“India is in a worse situation than in 2013 when trade talks were abandoned. Last year the government’s signal to industry was that they will be protected if they ramp up domestic production,” points out Biswajit Dhar, a professor at New Delhi’s Jawaharlal Nehru University and an expert on international trade relations. “Now the question is whether they can accommodate Europe’s demands to open up the market. It’s going to be a tall ask – for example the Indian automobile industry which is one of the country’s important industries will resist any suggestion of tariff cuts.”
But navigating the trade deal with Europe will be a key test for New Delhi as it seeks alternatives to China. In 2019 it abandoned a China-led regional trade pact – the Regional Comprehensive Economic Partnership, after it failed to address Delhi’s concerns over market access.
“For India it is a moment to underscore its credentials as a credible economic player because there are lots of questions about India’s ability to finalize trade deals,” points out Pant. “It has to show that it can walk the talk and can move forward on trade and economic matters with countries with which it has a strategic convergence.”